The Trump tax cuts would save me $2,100

Woohoo! Under the final tax bill President Trump is poised to sign within days, my annual tax payment would drop by about $2,100, compared with what I paid in 2016.

But I’m not planning to spend the windfall. Instead, I’ll probably save it and try to earn a respectable rate of return, so I have the money on hand in the future if Congress has to raise taxes to fill the budget hole they’re creating by cutting taxes in 2017.

House and Senate Republicans have now agreed on a final tax bill Congress seems likely to pass within days. It will sharply cut the tax rates on businesses, the most notable feature of the bill. After-tax profits seem certain to go up, a boon for anybody who owns a private business or shares in a public one.

For most individuals, tax relief will be modest. Some won’t notice much of a change. And a small but sure-to-be-vocal minority of individual taxpayers will face a tax hike.

One of the lucky ones

I’m likely to be among the lucky ones who gets a tax cut. I recalculated my 2016 taxes under the new rules, and at first, it looked like bad news. I claim two personal exemptions, one for myself and one for a child, which lowers my taxable income by $8,100. Since the new bill eliminates all personal exemptions, that would push my taxable income up.

It got worse: The new bill will put a cap on the state and local tax deduction (known as the SALT provision), another tax break that helps me lower my tax bill. Filers will now be able to deduct just $10,000 in income, property or sales tax under this rule—one of the bill’s most controversial provisions. That will raise my taxable income even more.

I have a mortgage, and deduct the interest on that as well, which won’t change under the new law. But the new cap on the SALT deductions will lower the total value of my itemized deductions by more than 40%. That, in turn, would push my taxable income 15% higher.

Here’s where I get lucky: The alternative minimum tax, which has swelled my tax payments during the last several years, won’t affect me anymore. That’s because the final tax bill pushes the threshold at which it kicks in higher, and I don’t make enough money to hit that threshold any time soon. In 2016, the AMT boosted my tax payment by about 20%, based on what I would have paid under the ordinary rate structure.

I’d actually end up in a higher marginal tax bracket under the final GOP bill. But when I looked up the tax owed on my 2016 income in the tax tables contained in the new legislation, I was relieved. My total tax bill would fall by about $2,100 compared with what I paid in 2016, thanks entirely to the departure of the AMT from my life.

I’m not a representative taxpayer. I live in high-income, high-tax New York, and my income is above the national median. But my computations are illustrative, and any taxpayer can do similar computations, to figure out whether they’ll end up better off, worse off or unaffected by the big changes coming.

Who will see the biggest changes?

The people likely to notice the biggest changes are those who claim a significant deduction for state-and-local taxes and will now be limited to a $10,000 deduction. Some taxpayers who claim the SALT deduction will end up better off anyway, since other changes will more than offset the new cap for some filers. But some won’t be so lucky, and will see their taxable income spike, with few other offsets to help. Key variables that will bring changes in 2018 include how much state and local tax you pay, how many kids you have, whether you’ll be affected by the new AMT threshold and of course what your income is.

Passage of this bill won’t be the end of the story. It may be more like the beginning, in fact. The GOP tax bill is already controversial for adding $1.5 trillion to the national debt during the next decade, at a time when the economy is generally healthy and doesn’t need a lot of help. Many middle-class Americans are skeptical of the bill, because they feel they’re only likely to get a token tax cut, while businesses rake in billions. And while those facing higher taxes under the bill won’t be a majority, they’re likely nonetheless to attract an outsized portion of media attention. You’ll hear a lot from them as next year’s midterm elections approach and voters get to render their firm opinion on the Trump tax cuts.